UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
Securities Exchange Act of 1934
Release No. 40336 / August 19, 1998
Accounting and Auditing Enforcement
Release No. 1067 / August 19, 1998
Administrative Proceeding
File No. 3-9678
______________________________
:
In the Matter of :
:ORDER INSTITUTING
:PROCEEDINGS AND IMPOSING
FRANK PALUMBO, CPA :A SANCTION PURSUANT TO
:RULE 102(e) OF THE
:COMMISSION'S RULES OF PRACTICE
Respondent. :
:
______________________________:
I.
The Securities and Exchange Commission ("Commission") deems it
appropriate and in the public interest that public administrative
proceedings be, and hereby are, instituted against Frank Palumbo
("Palumbo") pursuant to Rules 102(e)(1)(ii), 102(e)(1)(iii) and
102(e)(3)(i)(A) of the Commission's Rules of Practice.[1]
II.
In anticipation of the institution of this administrative
proceeding, Palumbo has submitted an Offer of Settlement
("Offer"), which the Commission, after due consideration, has
determined to accept. Solely for the purpose of this proceeding
and any other proceeding brought by or on behalf of the
Commission or to which the Commission is a party, and prior to a
hearing pursuant to the Commission's Rules of Practice, Palumbo
consents to the issuance of this Order Instituting Proceedings
And Imposing A Sanction Pursuant To Rule 102(e) Of The
Commission's Rules Of Practice ("Order") and to the entry of the
findings and imposition of the remedial sanction set forth below,
provided that Palumbo neither admits nor denies the findings set
forth herein, except as to jurisdiction and the findings set
forth in Paragraphs III.H and III.I below, which Palumbo admits.
III.
FINDINGS
On the basis of this Order and the Offer submitted by Palumbo,
the Commission finds[2] that:
A.Palumbo is a certified public accountant and has been licensed
since 1985. From August 1993 until his resignation in April
1995, Palumbo served as controller of Underwriters Financial
Group, Inc. ("UFG").
B.During the time period relevant hereto, UFG was a Colorado
corporation with principal offices located in New York, New York.
At all times relevant hereto, UFG's common stock was registered
with the Commission pursuant to Section 12(b) of the Securities
Exchange Act of 1934 ("Exchange Act") and traded on the American
Stock Exchange.
C.Between August 1993 and April 1995, Palumbo knowingly or
recklessly participated in a fraudulent accounting scheme to
overstate materially UFG's revenue, income and shareholders'
equity in financial statements that were filed with the
Commission and disseminated to the public.
D.As part and in furtherance of such scheme, Palumbo:
1.recorded fictitious and other improper accounting entries on the books
and records of UFG and its subsidiaries;
2.failed to record properly certain liabilities incurred by UFG and its
subsidiaries;
3.recorded other improper entries on the books and records of UFG and its
subsidiaries that overstated revenue, net income and shareholders' equity;
and
4.used falsified books and records to prepare financial statements
contained in UFG's periodic reports filed with the Commission.
E.As a result of such conduct, UFG filed materially false and
misleading annual reports on Form 10-K with the Commission for
the year ended December 31, 1993 ("1993 Form 10-K").
Specifically, UFG materially overstated revenue, income and
shareholders equity in the 1993 Form 10-K. In addition, UFG
reported a profit in the 1993 Form 10-K when, in fact, UFG had
incurred a loss that year.
F.Also as a result of such conduct, UFG filed materially false
and misleading reports on Forms 10-Q with the Commission for the
quarters ended March 31, 1994, June 30, 1994 and September 30,
1994. Specifically, UFG materially overstated revenue, income
and shareholders equity in each of those quarterly reports. In
addition, UFG reported a profit in its reports on Forms 10-Q for
the quarters ended March 31, 1994, June 30, 1994 and September
30, 1994 when, in fact, UFG had incurred a loss each quarter.
G.Palumbo made materially false and misleading statements to
accountants in connection with the preparation and review of
financial statements included in UFG's periodic reports filed
with the Commission.
H.On January 29, 1998, the Commission filed a complaint
("Complaint") against Palumbo and others (SEC v. Donald
Ferrarini, et al., 98 Civ. 0629 (SWK)) alleging that Palumbo
engaged in the conduct described in sub-paragraphs C. through G.
above. On February 9, 1998, the United States District Court for
the Southern District of New York entered a Final Consent
Judgment Of Permanent Injunction And Other Relief As To Defendant
Frank Palumbo ("Final Judgment") that, among other things,
permanently enjoins Palumbo from violating Sections 10(b) and
13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2.
Palumbo consented to the entry of the Final Judgment without
admitting or denying the allegations in the Complaint, except as
to jurisdiction.
I.In October 1996, Palumbo pled guilty in the United States
District Court for the Southern District of New York to one count
of conspiracy to commit, inter alia, securities fraud in
connection with the conduct described in sub-paragraphs C.
through G. above. United States v. Palumbo, 96 Cr. 816 (MGC).
J.By reason of the conduct and events set forth above, Palumbo:
(1) willfully violated Sections 10(b) and 13(b)(5) of the
Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2; (2) willfully
aided and abetted UFG's violations of Sections 13(a) and 13(b)(2)
of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13;
(3) engaged in improper professional conduct within the meaning
of Rule 102(e) of the Commission's Rules of Practice; and (4) was
permanently enjoined from further violations of the federal
securities laws.
**FOOTNOTES**
[1]:Paragraphs (1)(ii), (1)(iii) and (3)(i)(A) of Rule 102(e) provide, in
relevant part, as follows:
(1) The Commission may deny, temporarily or permanently, the privilege of
appearing or practicing before it in any way to any person who is found by
the Commission after notice of and opportunity for hearing in the matter .
. . (ii) to be lacking in character or integrity or to have engaged in . .
. improper professional conduct, or (iii) to have willfully violated . . .
any provision of the Federal securities laws (15 U.S.C. 77a to 80b-20),
or the rules and regulations thereunder.
(3)(i) The Commission, with due regard to the public interest and without
preliminary hearing, may by order temporarily suspend from appearing or
practicing before it any . . . accountant . . . who . . . has been by name
(A) permanently enjoined by any court of competent jurisdiction by reason
of his misconduct in an action brought by the Commission from violation . .
. any provision of the Federal securities laws (15 U.S.C. 77a to 80b-20)
or of the rules and regulations thereunder.
[2]:The findings herein are made pursuant to Palumbo's Offer of Settlement
and are not binding on any other person or entity in this or any other
proceeding.
IV.
ORDER IMPOSING SANCTIONS
Based on the foregoing, the Commission deems it appropriate and
in the public interest to accept the sanction specified in the
Offer submitted by Palumbo, and accordingly,
IT IS HEREBY ORDERED, effective immediately, that Palumbo is
denied the privilege of appearing or practicing before the
Commission as an accountant.
By the Commission.
Jonathan G. Katz
Secretary
Service List
Rule 141 of the Commission's Rules of Practice provides that the
Secretary, or another duly authorized officer of the Commission,
shall serve a copy of an Order Instituting Proceedings on each
person named in the Order as a party.
The attached Order has been sent to the following parties and
other persons entitled to notice:
Honorable Brenda P. Murray
Chief Administrative Law Judge
450 Fifth Street N.W., Stop 11-6
Washington, D.C. 20549
Alma M. Angotti
Securities and Exchange Commission
450 Fifth Street N.W., Stop 4-8
Washington, D.C. 20549
George N. Stepaniuk, Esq.
Chief, Branch of Enforcement No. 6
Securities and Exchange Commission
Northeast Regional Office
7 World Trade Center, Suite 1300
New York, NY 10048
Richard Friedman, Esq.
Giordano, Halleran & Ciesla
125 Half Mile Road
Middletown, New Jersey 07748
Counsel for Respondent Frank Palumbo